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Musings on Markets's Blog

The Buffett Plan: An apt name for a sanctimonious, hypocritical and superficial proposal

September 22, 2011 Comments (0)

At the start of this week, President Obama laid the groundwork for his deficit plan, with one of the proposals being what he termed the "Buffett" tax. Like Bank of America, a few weeks prior, he was perhaps hoping to borrow on Buffett's credibility to increase support for his plan. Put briefly, here is the what the plan is designed to do. Taxpayers who earn more than a million dollars will be required to pay at least as high a tax rate as what the average tax payer pays. What...

The Buffett Plan: An apt name for a sanctimonious, hypocritical and superficial proposal

September 22, 2011 Comments (0)

At the start of this week, President Obama laid the groundwork for his deficit plan, with one of the proposals being what he termed the "Buffett" tax. Like Bank of America, a few weeks prior, he was perhaps hoping to borrow on Buffett's credibility to increase support for his plan. Put briefly, here is the what the plan is designed to do. Taxpayers who earn more than a million dollars will be required to pay at least as high a tax rate as what the average tax payer pays. What...

Breaking up is easy to do...

September 21, 2011 Comments (0)

Breaking up may have been hard to do for the Carpenters, but it seems to be easy to do for some companies. Here are just  a few examples of companies that have announced plans to dismember themselves, in the last few months:Kraft Foods: Kraft Foods split itself into two companies: a division that sells candy and snacks (Oreo, Cadbury, Tang) globally and a division that sells grocery brands in the US (Oscar Meyer, Jell-O). McGraw-Hill: The company responded to demands by investors...

Operation Twist II: The Fed as Chubby Checker

September 16, 2011 Comments (0)

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Class is in session...

September 7, 2011 Comments (0)

As some of you probably already know, I teach at the Stern School of Business at NYU. Well, summer is officially over and a new semester is beginning. In a rite that I repeat at the start of every semester that I teach, I want to invite you to be part of my class this semester. Note, though, that this invitation is completely unofficial and approaching NYU for credit for taking the class is a definite no no. This semester's class:Valuation The only class that I will be teaching this fall is...

Buffett and Bank of America: Poker and Patsies...

August 25, 2011 Comments (0)

Warren Buffet is famously quoted as saying, "If you have been playing poker for half an hour and you still don't know who the patsy is, you're the patsy". Today, we got a glimpse of Buffett playing poker with Bank of America, and at least from my perspective, it seems clear who the patsy in this game is... it is either Bank of America's stockholders or the rest of us who attribute mystical properties (and uncommon ethics) to the Oracle from Omaha... So, let's recap what happened. It has been...

Trapped Cash: Measurement and Consequences

August 22, 2011 Comments (0)

It is an open secret that US companies have accumulated huge cash balances over the last two years. In fact, there were a few mentions that Apple's cash balance of $76 billion gave it more cash than the US treasury a few weeks ago, and I did a post on a while back on whether Apple had too much cash. While this "sitting on cash story" is an interesting one, there is a sub-story that we need to pay attention to and that may affect how we value companies. Not all of cash balances are equally...

Momentum versus Contrarian: Two Reads of the ERP

August 22, 2011 Comments (0)

I am not much of a market timer but there is one number I do track on a consistent basis: the equity risk premium. I follow it for two reasons. First, it is a key input in estimating the cost of equity, when valuing individual companies. Second, it offers a window into the market mood, rising during market crises. For the ERP to play this role, it has to be forward looking and dynamic. The. conventional approach of looking at the past won't accomplish this. You can however use the current...

Chill, dude! It is not the ratings downgrade.. It is how you react to it!

August 22, 2011 Comments (0)

Sorry about the title, but I am in Southern California, in surfer terriotory! I guess that the debt ceiling debate was not the end game it was made out to be. In spite (or perhaps because) of the fact that the debt ceiling was raised by Congress, S&P decided to downgrade the sovereign rating for the US from AAA to AA+. As the headlines trumpet the news and the airwaves are filled with self-styled experts telling us how this will change the world as we know it, it is useful to step back...

A Sovereign Ratings Downgrade for the US? End of the world or bump in the road?

August 22, 2011 Comments (0)

It is a sign of the times that a blog such as mine,  dedicated to micro questions (on corporate finance and valuation), is bogged down on the macro question of sovereign default and its consequences. But there is no getting around the fact that corporations and investors will spend the next week focused on the circus in Washington DC and not on their core businesses. So, let's ask the key questions: What is it that investors fear will happen next week? And what if those fears become...